Earnings Call: Q1 2022

Aug 3, 2021

Good afternoon. This is Sage Tanaka, CFO of SODIS Corporation. Thank you very much for joining us for the earnings briefing for the quarter that ended 30th June 2021. I will be referring to 2 documents in landscape format. They are titled Highlights of Consolidated Financial Results for the Q1 and supplementary material. Both have been made available on the web. Let me now begin with the middle portion under consolidated statements of profit or loss. Revenue, which is the IFRS equivalent of net sales. The 3 contributors were metals, mineral resources and recycling, chemicals and automotive. Metals, mineral resources and recycling was up JPY 45,000,000,000 from the same period previous year, came in at JPY 124,100,000,000, thanks to higher prices and transaction volume of non ferrous materials and coal. Chemical division was up JPY 42,100,000,000 to JPY 133,700,000,000 thanks to plastic resin transactions in Asia and its mainstay business of methanol, which enjoyed higher prices and higher transaction volume. Automotive was also up by JPY 33,700,000,000. In the Q1 previous year, lockdowns severely depressed the operations and earnings, and there was a reaction. Total consolidated revenue came to 492,800,000,000 yen that's up 143,500,000,000 yen from the same period a year ago. Gross profit, again, the contributors were the same 3 segments that pushed up revenue figures. Consolidated gross profit came to 56,400,000,000 yen that's up 17,400,000,000 yen from the same period a year ago. Going down to SG and A. Increased transaction volumes pushed up SG and A. New investments incurred due diligence costs, which were in part of non personnel expenses. There were also SG and A increase associated with newly associated entities. The total SG and A increased by 3,000,000,000 yen and came to 41,800,000,000 yen Going down to other income and expenses or non recurring items, in Q1 this year, there was very little except for what is included in the second bottom line item, which says other operating income and expenses. There is 1,100,000,000 yen in income here. This includes the gain on divestment of operations at a machinery subsidiary and valuation difference associated with forward exchange contract. Going down to financial income and costs. Net of interest expenses improved by 800,000,000 yen from the same period a year ago to expenses of 1,200,000,000 yen Dividends received was almost unchanged from the previous year at 1,200,000,000 yen and the net was 0. Further down, the share of profit or loss of investments accounted for using the equity method. This line item increased by 5,800,000,000 yen to 7,500,000,000 yen thanks to higher profit from steel operating company. With all this, profit before tax came to 23,200,000,000 yen After income tax expenses, profit for the period came to JPY 18,000,000,000 Further down, the part highlighted in blue, profit attributable to owners of the company came to JPY 16,900,000,000 that's up 14,500,000,000 yen from the same period previous year. To the right on the same row, you can see that this quarterly figure is 32% of the full year forecast of 53,000,000,000 yen So we are off to a good start. Further to the right to the consolidated statements of financial position. At the end of June 2021, total assets came to JPY 2,449,400,000,000. That's up JPY 149,300,000,000 from the end of March. Trade and other receivables increased, inventories increased too and there was execution of new investments and loans. Total liabilities at the end of June came to JPY 1,769,600,000,000. That's up JPY 124,000,000,000 from the end of March. To the equity section, there is the underlined line item that says total equity attributable to owners of the company. Compared with the end of March, this item increased by 20 6,200,000,000 yen to 645,200,000,000 yen at the end of June. There was a 16,000,000,000 yen increase due to the acquisition of treasury stock and dividend payment, but then a profit for the period and the increase in other components of equity meant that the net total increased. Further down, we are showing 6 key financial indicators. I'd like to draw your attention to the 3rd one, net debt equity ratio. So total assets increased, but net interest bearing debt increased more. And therefore, this ratio increased by 0.09 from the end of March and came to 1.08 at the end of June. Further down and cash flows. For cash flows from operating activities, if you look at core operating cash flow, this is cash inflow of 26,600,000,000 yen But due to the increase in general working capital, cash flows from operating activities was actually a net outflow of JPY 18,800,000,000. Cash flows from investing activities increased by or actually was a cash outflow of JPY 42,500,000,000 due to new investments. Free cash flow was a net outflow of 61,300,000,000 yen Core cash flow was a net cash outflow of 11,100,000,000 yen that's related to the shareholder return measures that was worth 11,600,000,000 yen Now let me turn to the 2nd page that says supplementary material and I'd like to focus on the large table in the middle that shows segment performance. I'd like to particularly focus on profit for the period. First, automotive. In Q1 last year, lockdowns in many countries depressed earnings overall. This time, we have a reactionary increase. So Q1 results were up 2,900,000,000 yen year on year, came in at 1,100,000,000 yen This is 22% of the full year forecast. Aerospace and transportation project, this benefited from the recovery in shipping market conditions. Last year, Q1 was a loss, but this year, we have come to profitability by 100,000,000 yen although this is only 2% of the full year forecast. Having said so, there is a seasonal factor. Parts out business and defense related businesses tend to have their earnings recorded in the second half. And therefore, at this point in time, we don't see there is any concern with regard to us achieving the full year forecast. Going to Infrastructure and Healthcare. In the same period previous year, there was a gain on partial sale of a power generation business, and there is a reactionally decline this time. So the profit figure for the quarter is 800,000,000 yen. That's 11% of the full year forecast. But again, there's a lot of earnings expected in the second half. For example, Nicho Electronics expects more IT related CapEx from its customers in the second half. And LNG Japan also has more earnings in the second half. And therefore, we don't think there is a concern with regard to achieving the 7,500,000,000 yen annual forecast. Metals, Mineral Resources and Recycling, as is written in the slide, the profit increased due to higher profit from steel operating company with recovery of steel demand and recovery in coal market conditions. Profit for the quarter was up or improvement of JPY 8,000,000,000 came in at JPY 6,000,000,000 This is 50% of the full year forecast. So this segment is doing very well. Chemicals. Methanol production and sales have been strong, and plastic resin transactions in Southeast Asia is also strong, and petrochemicals in the Americas is also strong. The profit for the quarter increased by 4,000,000,000 yen came in at 4,000,000,000 yen and that's 38% of the full year forecast. Consumer Industry and Agriculture Business. This increased due to higher sales volumes in overseas fertilizer business. The profit for the quarter came in at 3,000,000,000 yen that's up 900,000,000 yen from the same period last year. And the profit for the quarter is 60% of the full year figure. In addition to fertilizers, lumber products prices were higher, and imported plywood demand has also been stronger. Retail and consumer service. The quarterly figure is only 12% of the full year forecast, but imported beef prices are more stable, and transaction volume is also increasing and firm. And therefore, the profit figure was up 500,000,000 yen from the previous year. And again, in the second half, we are expecting earnings coming from real estate related operations. So at this point in time, we do not have particular concerns with regard to achieving the full year forecast. This is all from myself. Thank you very much for your kind attention.